A recent client came to us after having retrofitted their 240,000 square foot, 24-story office building, and were in search of potential tax incentives that would help offset the cost. They had completely reconstructed the exterior façade and replaced the windows with the goal of improving the look and feel of the building while upgrading its energy efficiency and sense of comfort for tenants. In the end, the project did result in increased occupancy and enhanced ROI but at a cost of $2.6M on a building that was purchased 5 years prior for 11.5M.
Our Capital Review Group team went to work exploring tax opportunities associated with energy efficiency improvements that would qualify years after a project was completed. They put together a package based on the §179D tax deductions, as well as the new Tangible Property Regulations, and the solution resulted in even more improved ROI than had been achieved with the physical improvements themselves. Here is the breakdown of how each tax deduction opportunity works and what they resulted in for this client:
§179D tax deductions are available to any replacement or retrofit project in a building’s HVAC, lighting, or building envelope subsystems that took place between January 1st, 2006 and December 31st, 2013. In this case, the retrofit and replacement of the building envelope qualified for $144,000 in energy deductions based on the maximum standard deduction of $.60/sf for each subsystem.
Tangible Property Regulations allow commercial building owners to expense remaining depreciation on structural or long-life assets that were removed or remodeled and are no longer in service. Because our client was still holding the old windows on the books for 29 years at $542,822, we were able to deduct that full remaining amount.
Overall, this client secured an additional $686,822 in tax deductions on a project that been completed for over 3 years ago. Capital Review Group works with a team of experienced design/sustainability and tax experts to identify tax incentives that combines together to help commercial building owners achieve the maximum ROI possible. Contact us for tax consultation on past, present, or future energy efficiency improvement projects. Our goal is to help our clients remove the capital constraints to developing progressive and effective energy strategies.